Question

(1 point) An investor purchases two bonds with the following properties: Bond 1: Has a face value $1000 and is redeemable at par. Pays coupons annually at a rate of 8.4% annual and was purchased for $1276.13 Bond 2: Has a face value $1000 and is redeemable at par. Pays coupons annually at a rate of 5.6% annual and was purchased for $1058.34 If both bonds mature in the same number of years and the investor yields the same rate on both bonds, find the yield rate (as a percent correct to 2 decimal places) Answer:

Answer 1

-1276.13+84/y*(1-1/(1+y)^n)+1000/(1+y)^n=0

and

-1058.34+56/y*(1-1/(1+y)^n)+1000/(1+y)^n=0

Solving the two simultaneously we get

y=4.85%